Euroz Securities eyes larger bonus pool

Euroz
’s stockbroking arm is seeking shareholder approval to increase the pool of funds available each year to pay bonuses, as part of a plan to retain employees and fend off offers from east coast-based rivals.

Executive chairman
Andrew McKenzie
told The Australian Financial Review that staff retention was a priority for the Perth-based company. For the securities unit, Euroz wants to enlarge the bonus pool to 40 per cent of pre-tax profits, up from 30 per cent.

“We are very conscious we have a good formula – it just needs a bit of tweaking," Mr McKenzie, who also heads the securities division, said. “In this business the goodwill walks in and out the door every day."

The move comes as the investment banking industry’s bonus period is in full swing. Locally, bankers from firms including Goldman Sachs and Morgan Stanley were informed of any payments last week.

Bank of America Merrill Lynch is understood to have delayed bonus day until the last week in January. The lion’s share of bankers will see payments ­similar to last year, as the industry ­continues to grapple with a regulatory clampdown on risky and unscrupulous activities.

In the Euroz case, shareholders will need to give the proposal the green light at an extraordinary meeting on February 21. Staff own about 40 per cent of the listed company, hence many will be excluded from voting.

The move may be less contentious, however, as all of the slated increase in the bonus pool will be used to purchase Euroz shares, deferred for three years. The company plans to establish a trust to buy shares on the market.

Euroz’s board last year engaged external remuneration experts Sherwood Love and Associates, which found a proposed increase in the bonus pool was “reasonable".

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“The anecdotal evidence we have . . . confirms that pre-tax profit payout ratios for variable remuneration have been up to the 45 per cent level and that some competitors are now paying on a bottom-up basis simply to maintain key talent until margins and profitability improve," the report said.

But the move comes at a still difficult time for many players in the broking industry as equity trading volumes remain challenging. Many firms have sought to bolster revenues by poaching employees from competitors.

Euroz this month said volatile and subdued commodity prices continued to weigh on the company’s daily ­sharemarket turnover, but the ­weakness was offset by equity capital markets transactions.

For the six months ended December 31 Euroz reported an unaudited net profit of $12.4 million, up from $9.6 million in the same period in 2012.

Mr McKenzie is upbeat about prospects in the securities unit.

“The next three to six months are looking the best they have for some time and we’ve definitely got more M&A (mergers and acquisitions) sitting on our books," he said.

While Euroz reviewed remuneration, it has yet to deal with the lack of independent directors on its board. Mr McKenzie said the issue would likely be addressed in the future.

“I think we will need to bring some independence to the board," he said.

Euroz’s board members are paid in their capacity as executives but do not receive directors’ fees.